What is a Ponzi Scheme?

Charles Ponzi

A Ponzi scheme is an investment operation that pays returns to separate investors, not from any actual profit earned, but from their own money or money paid by subsequent investors. Typically the Ponzi scheme entices new investors by offering "guarantees" other investments cannot make, in the form of promises of returns that are either abnormally high or unusually consistent. The perpetuation of a Ponzi scheme requires an ever-increasing flow of money from investors to keep the scheme going. These systems are destined to collapse because the earnings, if any, are less than the payments to investors.

What is a Ponzi Scheme?